The energy commodity price spiral has wreaked havoc on domestic electricity tariffs. The regulator approved Rs4.75per unit in lieu of monthly Fuel Charges Adjustment (FCA) for October 2021, to be collected in December 2021. This is not just another all-time high. For context, average monthly FCA in the last three years has hovered around 50 paisas per unit. The same for first four months of FY22 has shot up to Rs2.7/unit.
The average fuel generation cost for October 2021 at Rs10/unit was 2.5 times higher year-on-year. In a rare event, the fuel cost component for October 2021 was higher than the dreaded capacity cost component. The impact in terms of inflation as computed by the PBS will be north of 60 percent that will realize in December.
Mind you, the reference fuel cost component has gone significantly higher after the previous base tariff revision exercise earlier in the year. The reference fuel cost component is higher by nearly 40 percent from previous reference FCC. The fast-depreciating currency has made it worse and there is little that could have been in terms of global oil, coal, and gas prices. The impact was inevitable, but some of it could have been avoided, by better planning, paying more heed to regulator’s calls for efficiency, and showing more respect to the merit order of dispatch.
The furnace oil plants were once again back in the mix generating power at an average Rs21 per unit, costing Rs26 billion. Some of it could have been avoided had it not been for the system operators’ ill-planning as regards RLNG availability and allotment to the power sector. Recall that the government had earlier informed Nepra that the supply issue will go on unless there is anther terminal in place to handle more RLNG. The government has its separate priority list for gas consumption, where domestic sector comes first.
Not all RLNG power plants have firm supply contracts either, aggravating the non-supply risk. And when the demand is low, the firm-contracted gas supply then gets added to the power tariff, keeping constant pressure on the paying consumers. There are no quick fixes to the affordability aspect of the power equation. The seeds were sown five to six years ago. Very little progress has been made to address the technical constraints ever since. The fuel mix may well be significantly improved from back then, but various factors have combined to ensure that Pakistan can only hope for power availability and not affordability in the foreseeable future.